savings bonds purchasing limits

Did you read the announcement?

The reduction ... was made to refocus the savings bond program on its original purpose of making these non-marketable Treasury securities available to individuals with relatively small sums to invest. Approximately 98 percent of all annual purchases ... are for $5,000 or less.

That's why.

Whether it makes sense or not is a different question.

At current rates, most folks do better, at least in the short- to mid- term, with CDs and high-interest savings accounts.

Oh, and that $5000 limit applies separately to EE and I series, and also separately to paper versus paperless (online) purchases. So the theoretical combined limit is now $20,000.

Thanks for pointing this out. I'd not noticed, since with rates where they've been, I've not been paying much attention to Treasury Savings Bonds. The "real" rate on new I-bonds is still a pretty small 1.2%.

Anyone know who made this decision? Was in Congress? the Treasury Department?

I asked this same question last night on another forum. I like this answer better :)

Question- the real rate includes the inflation adjustment and the interest rate, correct? I read that CPI was 4% to 6% higher in 2007- does that 4% kick in anywhere? or does real return imply 1% above CPI?

Second, can an I-bond ladder be made similar to a CD ladder?

I have a 90 day CD ladder with three $4000 CDs- each one maturing at a

30 day increment and rolling over to a new CD with interest rolled in.

I'd prefer an inflation indexed ladder, if the cost is right. I read that costs and duration prohibit I-bonds from being used this way. Can anyone elaborate.

The CDs represent 3 months cash for our household. I need liquidity of a portion of the investment each month. Otherwise rollover to another 90 day investment.

No, the real rate is the rate above inflation. In other words, if the real rate is 1.2%, then to first approximation, the interest rate will be (inflation + 1.2%).

I suppose. However, I-bonds (like all savings bonds) cannot be redeemed for one year. That's not "can be redeemed but you pay a penalty", that's "cannot be redeemed for a year, no matter how much you need the money." Plus, if they are redeemed in the first five years, you lose three months' interest.

Do those CDs really pay more than a money-market mutual fund (not to be confused with a bank's money market account)? With a MMMF, you don't have to deal with all the rollover stuff, and can simply write checks against the account when needed.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

Rich- good info. I received similar advice somewhere else, sounds accurate to me.

I use the CDs to tie the money up. If it's in an account where we can write checks, my wife might mistake a high expense for an emergency, and that is not the point of an emergency fund. IMO anyway.

So I like the idea that CDs tie the money up. The difference between

2% and 4.5% interest on 12k is about $250 a year. Not ready to give up peace of mind for $250.

Ah. Well, you can simply refuse the checkwriting option on the money-market mutual fund, then. Though I guess that wouldn't stop your wife from calling the fund company and having them mail a check.

-- Rich Carreiro snipped-for-privacy@rlcarr.com